Foreign and Spatial Spillovers in the European Electricity Sector

Abstract

Productivity determinants of the urban domestic electricity sector in a cross-section of EU countries are examined to unveil the existence of two forms of spillover effects: those from foreign firms (foreign spillovers) and those related to spatial interactions (spatial spillovers). The empirical analysis also assesses the importance of industrial disaggregation in the context of the ongoing policy reform process at the EU level, aimed at creating a single competitive market for electricity. Results suggest that domestic productivity is influenced by agglomeration economies, and in particular scale economies, that both foreign and spatial spillovers are present, and that the overall implications of foreign presence and domestic firms’ ownership is differentiated across the generation and distribution segments of the electricity sector. The latter result highlights the importance of properly defining a firm’s relevant market, from the perspective of policy makers and firm managers alike.